Coach beats estimates on higher international sales

Adam Jeffery | CNBC

Coach, known for its Poppy handbags, reported better-than-expected sales for the first time in four quarters, helped by strong demand in international markets, especially China.

New York-based Coach's shares rose nearly 5 percent after the company also said it was "strongly committed'' to paying a dividend, allaying analysts' concerns about the sustainability of its payouts.

Coach, founded in 1941 in a Manhattan loft, is looking to grow its brand of affordable luxury goods in Asia and Europe as it loses ground in its biggest market, North America, to fast-growing rivals such as Michael Kors.

While Coach sells its handbags, shoes and clothes at a discount in North America, it commands full prices abroad.

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That helped international sales rise 7 percent in the fourth quarter ended June 28, with China sales rising 20 percent.

The company expects sales in China to rise 10 percent in the year ending June 2015 as it opens more stores to expand in tier 3 and tier 4 cities.

Coach's results in China contrasted with those of LVMH, the No.1 maker of luxury goods, which reported lower sales from the region due to government efforts to crack down on corruption and conspicuous spending.

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Weak North America

Coach said it expects China sales to top $600 million in fiscal 2015, higher than the $545 million a year earlier.

The growth in China will help Coach partly offset the weak North American market, where the company expects sales to fall in low double digits in percentage terms.

Coach's sales in North America fell 16 percent in the fourth quarter, while same-store sales decreased for the fifth straight time. In contrast, Michael Kors' sales rose 30 percent in North America during the same period.

Coach in June outlined plans to shut about 70 stores in the region, most of which will be in the first half of the year, and cut discounted online sales to arrest the slide.

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The company is also sprucing up its in-store presentations by having more open, accessible and prominently branded displays, CEO Victor Luis said on a conference call on Tuesday.

However, the store closures and inventory adjustment hit fourth-quarter profit and is expected to impact the current year's results as well.

Coach's net income fell 66 percent in the quarter. Excluding items, it earned 59 cents per share.

Net sales fell 7 percent to $1.14 billion, dragged down by the weak North American business, which contributed 61 percent of sales.

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Analysts on an average had expected earnings of 53 cents on revenue of $1.09 billion, according to Thomson Reuters I/B/E/S.

Coach's shares were up 5 percent just below $36 on Tuesday.

Up to Monday's close, the stock has fallen 36 percent in the last year compared with a 13.6 percent rise in the S&P 500

—By Reuters